Corporate Law in Michigan
In Michigan, corporate law governs the formation and operation of corporations formed under the Michigan Business Corporation Act, or businesses that existed prior to January 1st of 1973 under any previous statute. This law covers the rights and obligations of all parties involved in the formation, ownership, operation and management of an incorporated business. The Michigan Business Corporation Act is applicable to any domestic or foreign corporation authorized to conduct business in the State of Michigan. There are certain exceptions for industries such as insurance, surety, savings and loan associations, fraternal benefit societies and banking corps.
Corporations exist in order for individuals to conduct business with limited liability for themselves. This is possible because they are considered a separate legal entity from the individuals who make and own it. In Michigan, corporations are legally able to conduct business in their own name in the exact same manner as a person. The ease of doing business combined with limited liability makes a corporate structure appealing for a wide range of businesses across many different industries.
Because of the often complex nature of corporate law and the formation of corporations, it is strongly recommended to consult with an attorney specializing in business law.
Benefits of a Corporation
One of the largest benefits of a corporation is its ability to insulate owners from personal liability. The framework of incorporation creates a legal barrier that can be invaluable to an owner in the event the corporation is sued. The only liability that an owner has in the event of a lawsuit is the loss of his or her portion of the corporation ownership.
Another benefit is the fact that corporations are legally considered individuals, with many of the same rights. Corporations are formed as a result of owners pooling their financial and material resources together into this separate entity which acts on its own. This makes owners resources far less vulnerable to creditors and financiers than other types of business structures.
A large benefit for long term stability in a corporation is the ease of ownership transfer. In the event an owner no longer desires to have a share in the corporation, they can transfer their shares with little difficulty. This prevents the company from shutting down, as it would during the transition period in other types of business structures, such as the transferring of the ownership of a partnership.
A final benefit of corporations is the ability of owners to be hands off on the day to day operations of the business. Corporations have a board of directors as well as officers who handle the daily operations of the company. While owners can have a say in large decisions, they are not required to do so and can remain silent owners while continuing to receive shares of the profits. Generally speaking, the largest decision the owners of a corporation make is the election of board members who then select officers and run the company.
How to Form a Corporation
In order for a business to become incorporated, there must be articles of incorporation filed by one or more persons with LARA, Michigan’s business licensing and regulatory affairs bureau. For domestic corporations, their name shall include these words or abbreviations thereof: “corporation” (corp), “company” (co), “incorporated” (inc), or “limited” (ltd). Generally speaking, the articles of incorporation contain the following provisions:
- Legal name of corporation
- Reasons for incorporation
- Quantity of shares being issued by corporation, as well as the classes and series of shares issues
- Mailing address of corporations first registered office and name of initial resident at that address
- The names, addresses and other identifying information of the incorporators
- Duration of the corporation in the event it is not perpetual
After the articles of incorporation have been filed with LARA, then a board of directors is selected by a simple majority of the incorporators. The board then adopts bylaws and elects officers during their first meeting. These bylaws regulate how a corporation is governed and are able to be amended periodically as required by the board of directors. In Michigan, every corporation authorized to do business in the state should have a registered office and a resident agent. This is regardless of whether or not the corporation is domestic or foreign.
Issuing of Corporate Stock
Corporations have the ability to issue additional shares of stock, per their guidelines laid out in the articles of incorporation. These shares may be one class or may be divided into multiple classes of two or more types. If the additional shares issued are of multiple classes, then each class shall be uniquely designated in order to distinguish them from each other. The articles of incorporation may limit, deny or otherwise prescribe the voting rights of shareholders and may limit or prescribe the distribution, dividend or liquidation of shares regardless of their class designation. Shares are issued with share certificates to the shareholders of a corporation, and each certificate shall state the following on its face:
- That the corporation issuing said share is formed under Michigan State Law
- The legal name of the individual the share was issued to
- Number and class of shares issued as well as their designation that their certificate represents
Shareholders and Corporate Management
Shareholders normally meet on predetermined dates at predetermined locations, per the corporations bylaws. Normally this consists of what is known as the annual meeting of shareholders. However these meetings can also take place at any determined by the board of directors, such as at the registered corporate office or another location.
As mentioned previously, the actual management of the corporation begins with the board of directors. The board can consist of just one person, but typically consists of multiple people – the exact number is fixed by the articles of incorporation. These directors are elected by the shareholders annually, and can serve indefinitely if they are continually reelected. Directors select corporate officers, who carry out the daily operational tasks. Management under the corporate officers varies depending on the needs of the particular corporation.
Every year, corporations are required by the Michigan Business Corporation Act to prepare and distribute to each shareholder a financial report of the company for the previous year. This report must be submitted within four months after the end of the fiscal year it is covering, and must include several key financial elements. These include the corporation’s statement of income, its year end balance sheet, a statement of source and application of funds if prepared by the corporation and any additional information that may be required per the State of Michigan.